Set-Off Clause

What is a 'Set-Off Clause'

A set-off clause is a legal clause that gives a lender the authority to seize a debtor's deposits when they default on a loan. A set-off clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptcy proceedings.

BREAKING DOWN 'Set-Off Clause'

If a debtor is unable to meet an obligation to his or her bank, the bank can seize the customer's current deposit. Set-off provisions are not limited to loans between banks and their customers, but are also widely used in other industries, such as construction.

The Truth in Lending Act prohibits set-off clauses from applying to credit card transactions; this protects consumers who decline to pay for defective merchandise.

RELATED TERMS
  1. After-Acquired Clause

    A provision included in legal contracts ensuring that subsequent ...
  2. Debtor

    A company or individual who owes money. If the debt is in the ...
  3. Contingency Clause

    A contract provision that requires a specific event or action ...
  4. Collection-Proof

    A debtor who doesn’t have any assets that a creditor can collect ...
  5. Alienation Clause

    A clause in a mortgage contract that requires full payment of ...
  6. Creditor

    An entity (person or institution) that extends credit by giving ...
Related Articles
  1. Markets

    What's a Debtor?

    A debtor​ is an individual or company that owes money.
  2. Markets

    Corporate Bonds and the Importance of Covenants

    Any type of investor, private or institutional, should be acquainted with the significance of covenants in corporate bond agreements.
  3. Personal Finance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  4. Investing

    What Does a Creditor Do?

    A creditor is a person or entity that loans money or provides goods or services to another entity with the expectation of being paid back in the future.
  5. Personal Finance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  6. Personal Finance

    Contingency Clauses In Home Purchases Contracts

    Real estate contracts often contain contingency clauses, which are conditions or actions that must be met for a contract to be binding.
  7. Investing

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  8. Markets

    What Does Liquidation Mean?

    Creditors liquidate assets to try and get as much of the money owed to them as possible.
  9. Investing

    Understanding Bad Debt

    Bad debt is money a company or lender is owed, but is unable to collect.
  10. Personal Finance

    Soon, You Can Sue Your Bank Again

    Americans are going to regain the right to sue a bank or credit card company – but not in all cases. We explain what changes and what doesn't.
RELATED FAQS
  1. Can personal loans be transferred to another person?

    Learn whether it is possible to transfer a personal loan to another person, and find out what happens when you default on ... Read Answer >>
  2. What effect did the Bankruptcy Abuse Prevention and Consumer Protection Act of 2 ...

    Credit card companies and banks hate deadbeats who take from their bottom lines. They especially dislike the Chapter 7 bankruptcy ... Read Answer >>
  3. Can a creditor sue me for a delinquent account?

    Learn what happens when an account is delinquent and read about the regulations that protect consumers who have delinquent ... Read Answer >>
  4. What is an alienation clause?

    Whether used in reference to insurance policies, mortgages or commercial loans, an alienation clause stipulates that should ... Read Answer >>
  5. How do debt collection agencies make money?

    Find out how a collection agency makes money, what rules it is bound by, and when it can take a pay check or garnish a bank ... Read Answer >>
  6. Are debt collectors allowed to call me at work?

    Find out if and when it is all right for a debt collector to call a debtor at work and how the debtor can make it stop under ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center